Shareholder confidence boosts Telstra shares

Telstra shares have increased by 6 per cent in two days, with shareholders increasingly confident the Senate will reject legislation forcing the telecommunications company to split.

Transcript

WHITNEY FITZSIMMONS, PRESENTER: Telstra shares have rallied again with the Senate poised to block Government plans to break up the telco. Telstra has now added 6 per cent in two days.

As debate in the Senate continues, shareholders are increasingly confident their company will not have to split its operations and will be able to keep ownership of its network infrastructure.

Andrew Robertson reports.

ANDREW ROBERTSON, REPORTER: Telstra's beleaguered shareholders have had little to ring home about in recent times.

But as politicians have begun debating the company's fate, Telstra shares have added 5.5 per cent in two days.

Liberal Senator Michael Ronaldson thinks he knows why.

SENATOR MICHAEL RONALDSON, LIBERAL PARTY: Those shares are up seven or eight cents today on big turnover on the back of the potential for this legislation to be defeated.

ANDREW ROBERTSON: That legislation is the Government's plan to block Telstra from buying next-generation mobile phone spectrum if the company doesn't separate its network from its retail operations.

SENATOR NICK MINCHIN, LIBERAL PARTY: What we've here is a slow-motion train wreck from Senator Conroy in his handling of this policy area.

SENATOR CHRIS BACK, LIBERAL PARTY: If the Government considers Telstra to be a near monopoly and wants to break it up, where is the commercial or, in fact, the constitutional or the legal benefit in replacing it with another monopoly?

ANDREW ROBERTSON: And while the likelihood of Telstra remaining intact has buoyed shareholder sentiment, sharemarket analyst Greg Canavan believes there's more to it than that.

GREG CANAVAN, SHAREMARKET ANALYST: Although the fixed line revenues are under pressure, I think the company's still going to make some good money over the next few years and I think people are coming to the realisation there's a strong dividend yield there, the stock price is fundamentally cheap and it's probably time to buy.

ANDREW ROBERTSON: Despite the euphoria of the last couple of days, a look at the last 12 months highlights Telstra's struggles.

A year ago Telstra shares were $3.08, just 1 cent higher than today. By contrast, the ASX 200 is 49 per cent higher than last March.

Greg Canavan believes Telstra will continue to improve in the short-to-medium term but only to about $3.30.

GREG CANAVAN: I think there's still a lot of risk around Telstra. Obviously, regulatory risk is the main issue there and I don't think those risks have gone away, so we'll continue to see volatility in the weeks ahead but as I said there is fundamental value there so I think that's what investors are starting to look at now.

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ANDREW ROBERTSON: The change in sentiment towards Telstra is being closely watched by its competitors.

Rival internet provider iinet says a Senate vote against the Government's plans to break up Telstra will be bad news for the rest of the telco sector.

STEVE DALBY, IINET: We'll be back into the same fight that we've been having for the last nearly 15 years about improved competition in the telecommunications market in Australia.

And we've seen the current regulatory regime really fail to deliver on the public policy that this Government and previous governments have been pushing.

ANDREW ROBERTSON: If the Government's Telstra legislation is defeated companies like iinet will still be able to move their business to the national broadband network when it's built.

But Steve Dalby says that won't be the best solution.

STEVE DALBY, IINET: It would be important to get the volume of traffic that Telstra's retail business generates onto the network - the national broadband network - as well, to ensure that the national infrastructure is competitive and is cost effective and is not working at loggerheads against a copper-based network that Telstra owns and operates today.

ANDREW ROBERTSON: The Senate vote on Telstra's future is now expected next week.